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Eco stars from the North

Why the Scandinavian nation traditionally known for its industrial groups is leading the world with its sustainable business agenda.

While start-ups may be the stars of the show today, historically Sweden is better known for its big companies, such as Volvo, Scania, Electrolux and Ikea. One of the country’s largest construction businesses, Skanska, is at the forefront of the sustainability agenda. “Almost all of our own projects are green. We go beyond the [minimum] regulations regarding energy and water use, carbon emissions, waste and hazardous materials,” says Lena Hök, Skanska’s Senior Vice President of Green & Community Investment.

In fact, Skanska’s partnership with Ikea on the ‘BoKlok’ flat-pack homes, the first of which were erected in Sweden a decade ago, is a particular success story in sustainability that also has social impact. “These apartments and townhouses are prefabricated and made of wood to drive costs down and promote resource efficiency,” says Hök. “Someone who is a single mum or a nurse should be able to afford them. And we have a substantial position in the wooden homes market in Sweden just with that one product range.”

Projects that are sustainable provide a measure of futureproofing, protecting the returns from expensive assets against the possible impact of factors such as rising energy prices and climate change-related risks. “There has been a tremendous shift from investors,” says Hök. “Sustainability used to be seen as a few ethical funds ‘over there in the corner’, but now it is looked at as a way to understand profit and risk.”

Environmentally sustainable production is currently at the core of the Swedish government’s ‘Made in Sweden 2030’ agenda, which aims to secure the country’s long-term competitiveness in manufacturing. With this in mind, we travelled to Sweden to meet three entrepreneurs who are investing in green tech.

Clean tech: Mehrdad Mahdjoubi, Orbital Systems

A Swede who has returned home with a great green idea after a stint in the US is Mehrdad Mahdjoubi, an industrial designer and former NASA researcher turned founder of eco-shower business Orbital Systems in Malmö, southern Sweden. Would it have made more sense to set up shop in the US, where all the big venture capitalists are? Mahdjoubi, who has recently received a $2.5 million grant from the Swedish Energy Agency for reducing water use, thinks not. “Sweden is a great place to start an impact business. There is a national focus on sustainability and a strategy of wanting to be associated with those kinds of businesses,” he says.

Mehrdad Mahdjoubi, portrait by Christoffer Rudquist

"It's just not cool to waste resources here... I don’t want to pour 100 liters of perfectly clean water down the drain just because I need to wash myself.”

Mehrdad Mahdjoubi, CEO, Orbital Systems

An Orbital shower saves up to 90 percent of water and 80 percent of energy compared with a conventional unit, because it selectively filters and recycles the water you wash in, rather than simply letting it all drain away down the plughole. The end result is a shower that uses only five liters of water, rather than the 100 liters that is normally consumed. It is super-clean, too, as no legionella bacteria or other nasties make it past the filter. But crucially, it is a powerful and invigorating experience, Mahdjoubi says, and it does not feel like a shower that is about saving water. “You can have sustainability without compromise. I don’t want to feel that I am sacrificing myself to save the planet.”

The idea was born while he was at the Johnson Space Center in Houston, Texas, doing the groundwork for a potential manned NASA mission to Mars. Working on a water purification and recycling system based on the same technology as kidney dialysis machines, Mahdjoubi realized he had hit on something that could have a much wider market than a mere eight astronauts who might, congressional budgets willing, someday be going to the red planet. “I thought this could be very good for Earth, too. So, did I wait 10 years to see if there was a budget for the mission? I had no option. I knew I had a great idea and I had to make it happen quickly.”

Mahdjoubi launched Orbital Systems in 2012. His showers are high-end products costing around $4,000 each, and his customers are mainly commercial, such as hotel operators and luxury housing developers, for whom the lifetime costs and sustainability benefits outweigh the high purchase price. But the company has also signed partnerships with upmarket household brands, including Gaggenau and Miele. The aim is to ramp up production so that economies of scale bring the price down to below $1,000, the point at which Mahdjoubi believes domestic demand will take off. Ultimately, he would like to take Orbital showers to water-constrained regions of the developing world, where water is scarce and often not well managed.

Despite not being the target market, Sweden makes sense as a location for two main reasons, he says. One is access to talent: the largest maker of dialysis machines, the US healthcare business Baxter International, is based there, so there is a ready supply of engineers with the skills that Orbital needs. The other is the fact that sustainability is a social norm in Sweden. “It’s just not cool to waste resources here,” says Mahdjoubi. “Someone driving a big SUV with a huge engine is not necessarily seen as something admirable. And I don’t want to pour 100 liters of perfectly clean water down the drain just because I need to wash myself.”

Furthermore, education is free and of high quality, the digital infrastructure is great, and Swedes still have a high level of trust that their government will try to do the right thing for its people, Mahdjoubi adds. “But there is also something that is in our souls. There is a strong survivor culture. Most of us are pretty good planners, because you have to be to survive. You use the summer to gather the harvest and plan how you will survive the winter. That’s the base culture here.”

Green energy: Peter Carlsson, Northvolt

Deciding to build Europe’s largest and greenest rechargeable battery factory, a $4 billion giant occupying 200 hectares (494 acres) of land at Skellefteå, in the far frozen north of Sweden, does not sound like much of a rest cure. But it is what former senior Tesla operations executive Peter Carlsson ended up doing after a punishing stint working alongside the company’s iconoclastic but famously hard-driving boss, Elon Musk. “I stepped out of Tesla at the end of 2015 after the Model X launch,” says Carlsson. “In four and a half years, we had gone from 400 to 17,000 people. It was a fantastic time, but the pace… I was just exhausted.”

Peter Carlsson, portrait by Christoffer Rudquist

"In Sweden, energy prices are among the lowest in the world… [the saving] will pay for nearly all of our employees"

Peter Carlsson, CEO, Northvolt

Despite hankering for a rest, Carlsson’s desire to bring the disruptive energy technology he learned about at Tesla to Europe – to “make the world’s greenest battery” – meant that he ended up postponing the pipe-and-slippers lifestyle, founding Northvolt instead, which was launched in 2017. “When we started to look at this, it felt like a purpose. We spent six months traveling around doing a feasibility study on Europe: will the customers be there? Is there an opportunity to build at scale? Can we build an independent supply chain all the way down to the mine? The more we looked, the more the idea appealed.”

If Carlsson succeeds then, by 2023, the Northvolt plant – dubbed a gigafactory for its huge size – will be employing more than 2,000 people. Its four fully integrated production lines will be taking in raw materials, such as graphite, lithium and manganese at one end, and, at the other, churning out an annual lithium-ion battery capacity of 32 gigawatt hours (equivalent to one million kilowatt hours). The batteries will power
not only the electric vehicle revolution, but also what is known as the ‘Transformation’: the shift over the next 20 years or so from a global economy predominantly dependent on oil and gas, with all the harmful emissions that involves, to one based largely on sustainable, planet-friendly renewable energy. “As soon as energy storage is affordable enough, the revolution will start,” says Carlsson. “There will be a huge transformation of industries and supply chains, and a massive amount of capacity shortage. The mission of the company is to try to ride that transformation.”

Northvolt has signed partnership deals with companies including commercial vehicle manufacturer Scania, owned by Volkswagen, and ABB, the Swedish-Swiss industrial power business. There are several more in the pipeline. And the European Investment Bank has provided a loan of €52.5 million ($64 million), which will help get a small production facility up and running, before serious fundraising begins for the $1 billion or more required to build the first of the four main units at Skellefteå, with the aim of starting production in late 2020.

From a modest 85 gigawatt hours in 2016, global demand for lithium-ion EV (electric vehicle) batteries is expected to rise to 500 gigawatt hours by 2025, according to analysis by Benchmark Mineral Intelligence (specialists in lithium-ion battery supplies). And Carlsson is not the only one trying to fill the gap in the European battery market. “The companies we are competing against are impressive,” he says. LG Chem is planning to build a factory in Poland; Samsung SDI in Hungary. The clock is ticking.” Meanwhile, a consortium led by Terra E, set up by German battery experts BMZ in 2017, is planning large-scale production facilities in Germany, and, with typical bravura, Carlsson’s old boss Elon Musk says he plans at least five more gigafactories (there is one in the US state of Nevada already). If they ever get built, the chances are that one of them will be in Europe, too.

So the stakes are high, and Sweden – relatively small and on the periphery of Europe, beyond the euro area – might seem like an unlikely country from which to mount a bold attack on such heavyweight competitors. But while the country may lack the economic and technical kudos of Seoul, Silicon Valley or Shanghai, it has some crucial advantages for an energy-intensive manufacturing process that must also be sustainable.

First, there is the location. Skellefteå may be remote and chilly, but it is right on top of a mine that will provide some of the vital raw materials for Northvolt; and it has a port and railway to bring in other materials and take the finished batteries away. Second, it has cheap, renewable power. “To produce one kilowatt hour of battery capacity requires roughly 60 to 80 kilowatt hours of electricity,” says Carlsson. “And in Sweden, energy prices are among the lowest in the world. The saving in electricity cost for running this process here, rather than in China or Japan, will pay for nearly all of our employees.”

Furthermore, because that electricity is generated largely by hydroelectric plants (the factory will run on 100 percent renewables) the production process is genuinely sustainable. “The energy system you use makes a huge impact on your carbon footprint. If I buy an EV, I want to know that I am really doing good, not just quasi-good. This is a big issue for our customers.”

The social impact is also a vital factor in attracting talent. Northvolt’s staff of around 80 employees includes 25 different nationalities, such as highly skilled engineers from Japan, where the lithium-ion battery was first commercialized about 30 years ago. As Carlsson says: “Having a clear purpose and contributing to the mission has a significant value.”

Recycling textiles: Malcolm Norlin, re:newcell

With his latest investment, Malcolm Norlin is attempting to limit the enormous environmental damage caused by the cotton harvest. As well as being chairman of private investment company Girincubator, he is the co-founder of re:newcell, a start-up that has, he says, succeeded where many other larger firms have failed: it has ‘closed the loop’ in the textile industry by developing a revolutionary new process for recycling cotton and viscose fabrics.

Malcolm Norlin, portrait by Christoffer Rudquist

"The big cellulose technology manufacturers have not been able to do what we are doing"

Malcolm Norlin, co-founder, re:newcell

Cotton is the world’s most popular textile. Around 25 million tonnes of it, according to the Better Cotton Initiative, is produced annually. But it cannot currently be recycled and reused to make new clothing. The best you can hope for your old jeans and T-shirts is that they are chopped up and fed into industrial processes such as papermaking or used in thermal insulation in buildings.

Cotton cultivation is also extremely intensive in its use of water and pesticides. “A pair of jeans requires 6,000 liters of water to make, and 25 percent of the world’s insecticides are used in cotton production,” says Norlin. The result is that rivers in Asia are polluted by pesticides. And in Central Asia, he says as an example, the Aral Sea [between Kazakhstan and Uzbekistan] has shrunk by 90 percent since the 1960s, when its rivers were diverted to irrigate the region for cotton growing.

After careers in forestry and aviation, Norlin feels that this environmental nightmare gives him a very specific remit as a private investor. “You cannot invest in anything today without making sure it is totally environmentally correct in the long term,” he says. Global demand for textile fibers is growing briskly, from around 90 million tonnes per annum at present to an expected 150 million tonnes per annum by 2030. Yet it is hard to see where that additional 60 million tonnes will be found. You cannot grow more cotton because of the environmental damage, and synthetic fibers with their reliance on petrochemicals are hardly any better thanks to greenhouse gas emissions, water-polluting microfibers and the fact they are non-biodegradable.

Re:newcell’s answer is to recycle what is already there. The process involves dissolving the old cotton fabric and separating the cellulose fibers from the resulting slurry, turning them into brand-new fabric that performs just as well as virgin cotton (to prove this point, clothes made of re:newcell have been shown at Berlin Fashion Week). And the recycled garments can themselves be recycled, again and again.

The technology can even cope with recycling cotton that is mixed with other fibers. It was developed at the Royal Institute of Technology in Stockholm, by scientists whom Norlin knew through his work in forestry. “They are the foremost cellulose scientists in the world. When they say the technology is new, it really is new. The big cellulose technology manufacturers have not been able to do what we are doing, and they are very interested in it,” he says.

A test plant is up and running in Kristinehamn, in Värmland, central Sweden, and at the end of 2017 (three years after the first re:newcell garment was produced), the Swedish fashion-retail company H&M invested an undisclosed sum for a 10 percent stake in re:newcell. If all goes according to plan, according to Norlin, the company’s environmentally friendly fabric could become a textile brand name like Gore-Tex.

It is a global solution to a global problem, but “it would have been hard to do it anywhere other than in Sweden,” says Norlin. “The proximity of the Royal Institute of Technology is key, but there is also the fact that there is so much Swedish design in textiles worldwide. In Sweden, they read the international trends, and the trend is to be environmentally correct. When other people become aware of the fact that there is a shortage of environmentally correct textiles, it will be a real shock.”

National resources

What outsiders tend not to realize about Sweden, says Magnus Krusberg, a financial services expert and Head of PA Consulting in Stockholm, is that many of the apparent drawbacks to doing business in the country are actually advantages, especially when it comes to sustainable and impact businesses. Take the tax system, for example – the tax burden on most employees is high, at between 50 percent and 60 percent, but it funds social innovation. “Yes, we have pretty high taxes, but we like it that way,” he says. “The tax system is used by the government to drive sustainable behavior, encouraging less water use and lower carbon emissions. And because we have a relatively high-cost workforce, we have to be efficient. That encourages sustainability, the most efficient use of resources.”

The Swedish national trait for consensus also helps find answers to tricky sustainability problems that tend to require close cooperation across professional boundaries that might otherwise be jealously guarded. “Sweden has a long history of collaboration between government, industry and unions, with everyone taking a shared responsibility for the nation,” says Lisen Schultz, Research Fellow in Adaptive Governance at the Stockholm Resilience Centre. Her own research is interdisciplinary and looks at how businesses and academia can work together to become more sustainable. “We have to learn how to navigate the Anthropocene,” she says. “We have got to the stage where humans have a huge influence on the world, but we are all still dependent on the planet.” Rather than a lot of activists finger-pointing when things go wrong, “sustainability needs to be framed in a way that you can act on positively. It’s not only about business minimizing negative impacts; it comes down to a deep understanding that we all rely on the common resources of the world and that we can influence them now for the better.”

So, while Swedish business people may not shout about their achievements quite as loudly as others, when it comes to sustainability their ideas are quietly taking over the world. The realization is spreading that doing good drives innovation and profitability and attracts great talent, as well as giving customers a warm feeling inside, says Skanska’s Lena Hök. “You can gain market share from sustainability and create a competitive advantage, but you have to be in it for a genuine green performance. You can’t just have green dreams.”

Andrew Saunders writes about business, financial technology and entrepreneurship for publications including The Times and The Guardian.

This article was first published in May 2018 in the International edition of WERTE, the client magazine of Deutsche Bank Wealth Management.

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